Survey Reveals Mismatched Trade-Offs Among Millennials

An Ameriprise Financial study of savings habits finds that more Americans are cutting back on smaller discretionary expenses rather than on bigger ticket items, an ominous sign – perhaps – that younger consumers will not be able to amass enough savings until much later.

The good news is that more than half of Americans surveyed said they are saving an average of $185 a month by cutting back on eating out, entertainment and clothing, according to Ameriprise’s Financial Trade-Offs study.

The bad news is that many consumers aren’t cutting back – or aren’t able to cut back – on areas with a much higher financial impact on their lives.

Slashing the coffeehouse latte budget from $20 to $10 a week makes no sense if you then go out and lease a new car, even with teaser 1.9 percent financing.

From a wealth management standpoint, consumers need to act in exactly the reverse: buy a used car and keep their lattes, if they want. Buying a used car and cutting back on the lattes is even better, of course.

But that’s not what appears to be happening, according to the Ameriprise survey of the trade-offs of 3,002 employed Americans ages 25 to 67 with at least $25,000 in investable assets and access to employer-sponsored retirement benefits.

The result is that while many millennials, those born after 1980, are making prudent spending decisions with regard to the 18 discretionary expenses categories in the survey, many are still taking on too much debt, either in the form of car payments, school loans or credit cards.

The debt obligations mean that millennials are having a devil of a time putting any money away in savings, as every dollar spent to repay a creditor is a dollar less that ends up in short- or long-term savings and debt retirement.

“It can be difficult to make adjustments to your expenses in order to save more, but the extra cash can really add up over time to make a big impact,” Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial, said in a news release.

Only 59 percent of millennials compared with 75 percent of baby boomers admit they have a monthly savings plan, and only 57 percent of millennials with access to an employer-sponsored retirement plan are contributing enough to take advantage of the employer match, the survey found.

In addition, 69 percent of millennials say they have either reduced their contributions to their employer-sponsored plan or would consider doing so in the future.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].